The pound could easily go further than it has today and rise above the all-important 1.1446 which is the high seen in the last 4 months. Overall expectations for the exchange rate centre around key developments next month on Brexit and also the European political situation. Unexpected progress on the Brexit bill to be charged has seen sterling higher but this could quickly be undone.
The recent improvements on the pound are all down to speculation the UK has now done enough to meet the EU’s criteria to move to phase 2 of the negotiations, which, whilst now very likely to happen, could see sterling very volatile over the next few weeks. The market will be very sensitive to news of how likely this will be so the pound will react accordingly.
Most outcomes surrounding the EU summit point to the deal being reached by typically these events end up with plenty of uncertainty and twists and turns in the lead up to it. Overall impressions are for further sterling strength but this should not be taken too much for granted!
Looking at the Euro, the main concerns for me stem from the Spanish Catalonian election on the 21st December. This event could trigger some unexpected volatility on the GBPEUR currency pair, principally Euro weakness. The market will also need to factor in the possibility of one of Spain’s most successful regions looking to detach itself from Spain. Carles Puigdemont has already been looking to trigger an anti – EU vote so the prospect for the region and the Euro is not looking great.
I expect GBPEUR could not begin to trade in a range of 1.12-1.16 compared to the levels of 1.10-1.14 we have been used to in the last couple of months. If you have a transfer buying or selling Euros or pounds the changes in the rate are something to be preparing for.
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